FOR NEW RENEWABLE ENERGY PROJECTS

Posted by Admin
on Aug 13th, 2009 and filed under Energy.
You can follow any responses to this entry through the RSS 2.0.
You can leave a response or trackback to this entry

FOR NEW RENEWABLE ENERGY PROJECTS: CASH OR CREDITS.

The Great Recession has been tough on renewable energy developers and project suppliers alike. The economic downturn has made money hard to get. If there’s no upfront capital – cash to pay contractors and suppliers – projects can’t be started. A no start is a no go.

Many commercial renewable energy projects in the U.S. (those which are intended to make money through the sale of energy) have been relying on some form of tax credit incentive from the federal government to cut the cost of energy sold from the plant. Lowered cost realized from the incentive makes the cost of renewable energy competitive (or closer to it) with conventional forms of energy.

The trouble is, tax credits are not cash.

A tax credit may help out an accounting balance sheet in money not paid out in taxes. A tax credit can also be relied upon each year the incentive is in effect to keep that balance sheet in line and may even result in a refund. A credit too, as long as it is guaranteed to be applied to a tax return year after year, can also be used to help obtain financing for a project. Bankers and other investors look at the bottom line over the term of an investment: If the tax credit makes the energy project financially feasible, the moneys are more likely to flow. But, when money is tight, a tax credit realized at some future date may not be enough to open a lender’s checkbook.

Now, with a new grant program authorized under the American Recovery and Reinvestment Act (ARRA), companies that are building or put into service renewable energy projects backdated to the beginning of 2009 through the end of September, 2011, can apply for cash in lieu of those credits. That is, companies can forgo all tax credits in the future for a check in the mail much sooner.

The U.S. Department of Energy and the U.S. Department of the Treasury estimate that they will distribute at least $3 billion to support about 5000 solar, wind and other renewable projects that may now be in limbo because of financing and credit difficulties

“This program will play a major role in encouraging private sector capital to invest in clean energy development, creating new jobs that can’t be outsourced. It is an investment that will continue to help our economy grow and ensure advancement in clean and renewable energy development,” said Energy Secretary Steven Chu about the program.

Yet the program may not be for every commercial renewable energy developer. The application process is extensive and there are eligibility rules for the project and its owners. There are annual reporting requirements even after the project is built. If the project doesn’t meet certain terms and conditions, even after it’s operating, a portion of the money has to be paid back. It appears that companies will have to be registered as government contractors to get the funds: The fed likes to know where taxpayer dollars are going. There are other rules as well.

Lawyers and accountants of companies that are interested in this program need to review it closely. Sometimes cash is not as good as a nearly guaranteed annual tax credit. Still, the program will be good for many projects and could wake up an industry that has been half asleep for most of a year.